Flipkart parent Walmart said yesterday that there would be some additional costs of compliance following India's new FDI regulations as far as Flipkart was concerned. Yet, it also believes that this will not be significant enough to impact the company's guidance for FY2020.
US retail major, Walmart has switched to a “wait and watch” mode before pumping in further funds into its Indian e-commerce arm, Flipkart. The statement comes a few weeks after the revised foreign direct investment (FDI) norms for ecommerce came into effect.
When asked during last night's earnings call about how the new regulatory environment would impact investments into Flipkart, Walmart’s Chief Financial Officer, Brett M. Biggs, said, “I think we'll see how the year goes and respond appropriately.”
Walmart follows February–January as its annual financial year and the revised FDI norms came into effect from February 1, 2019. So effectively, Walmart’s first quarter of FY2020 and India’s revised norms started on the same day.
The gross profit rate for Walmart’s international segment declined by 116 bps for the fourth quarter of FY2019, primarily due to Flipkart, indicating that the deep discounting policy for Indian ecommerce is impacting its margins. This was the first full quarter where Walmart included Flipkart’s performance in its financial report. In the third quarter, ended October 2018, Walmart included Flipkart’s financials using a one-month lag.
The CFO added that Flipkart was not just an ecommerce company but an ecosystem. The group includes a payments firm (PhonePe), a delivery/logistics firm (eKart), as well as fashion brands such as from Myntra and Jabong. He indicated that Walmart had the option to leverage different parts of the ecosystem as and when required.
He added, “Flipkart is already an ecosystem. There's the PhonePe payment platform. There's last-mile delivery. There are the Myntra and Jabong businesses in apparel. So it's not just one thing, and it's not just ecommerce business in the traditional sense. There's a lot of dimension to it. So there, just like here, we've got a lot of different variables we can play with demand as a total.”
On the call, Walmart President and Chief Executive Officer, C. Douglas McMillon, stated, “In terms of the regulatory environment, we were disappointed in a recent change in law and the lack of consultation that the team has worked to ensure we're in compliance with the new rules. We're committed to providing sellers with a world class platform to sell on and customers with a high quality of service. We hope for a collaborative regulatory process going forward, which results in a level playing field.”